Comments of J. Hendricks on SR-NASD-2001-90

February 21, 2002

Jonathan G. Katz
U.S. Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549-0609
Re: File No. SR-NASD-2001-90

Dear Mr. Katz,

NASD Rule 4300: How is that going to work? Nobody knows, but it makes no sense because of the requirement of multiple connections among participants. As outlined below, this burden is extremely expensive, unnecessary, and arbitrary. These points are magnified further since the Nasdaq itself has not even shared with members how it will work.

By the NASD's own words: The Nasdaq Stock Market is entrusted with the authority to preserve and strengthen the quality of and public confidence in its market. The Nasdaq Stock Market stands for integrity and ethical business practices in order to enhance investor confidence, thereby contributing to the financial health of the economy and supporting the capital formation process. Nasdaq issuers, from new public companies to companies of international stature, by being included in Nasdaq, are publicly recognized as sharing these important objectives of the Nasdaq Stock Market.

The NASD has stated in their proposal:

The NASD believes that the proposed rule change is consistent with the provisions of Section 15A(b)(6)7 of the Act, which requires, among other things, that the Association's rules be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, and, in general, to protect investors and the public interest.

The way that this proposal is written it does not prevent fraudulent or manipulative acts and practices, simply because there are no rules which govern execution, and limited rules that govern quotations. Without a defined and established execution mechanism, this proposal is not viable and does not protect investors and the public interest. The SEC cannot simply stand back and believe that every single market participant will connect to every other participant, regardless of size and regardless of cost. This position if taken by the SEC would be highly irresponsible, since it is an impossibility - especially in light of no rules or guidance which govern executions on trades displayed on the ADF. Further in the same paragraph or the NASD proposal, the NASD states:

The NASD believes that the proposed rule change will provide a cost effective and efficient mechanism to quote and report trades on the ADF. The proposed rule change is also consistent with Section 15A(b)(5) of the Act in that it provides for the equitable allocation of reasonable dues, fees and other charges among members and issuers and other persons using any facility or system that the Association operates or controls. The NASD believes that this fee structure is a reasonable means for the NASD to recover the development costs of the ADF, as well as meet ongoing operating costs.

To address development costs: if the NASD intends to fool the commission into believing that the ADF, as it is proposed as simply a display mechanism, is expensive to develop, they are intentionally misleading the SEC and the public. A display mechanism is not expensive to develop and maintain and can be done for under $1-million, even with redundancy. The fee proposals that the NASD has forwarded in their proposal and not consistent with Section 15A(b)(5) of the Act in that it does not provide for equitable allocation of reasonable dues, fees and charges among members. This fee structure, with or without regard to the fees involved in maintaining connection to Supermontage, is a) expensive, b) favors only big firms, c) unnecessary, and d) prohibitive to decisions which foster true competition in the market for the benefit of the small investor.

Please, whatever you do, don't pass this ADF proposal without considering the burdens that it will place on small investors, and the balance that will be upset by the imposition of the ADF on the market.


Jim Hendricks